World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Friday, January 29, 2010

Wait, no, it's a Glorious Morning, Comrades! The central planners have good news regarding the health of their country… yes, it’s true that 6 million people losing their jobs is really the same as creating 2 million jobs, and now we can rejoice in knowing that a failing economy is really growing at a 5.7% pace! Truly glorious!

And for that masterfully trumped up report we get slightly higher equity futures, the bounce in the DOW and S&P can be seen below. I left the DOW as a 30 minute chart so that you can see the channel boundaries. A rise above the upper boundary will indicate that wave 2 has likely begun, should it fail to pierce the boundary, then wave 1 is still in progress, having already lost nearly 700 points from top to bottom:

I feel embarrassed and ashamed to even talk about the GDP report. Disgraceful how far from reality that number is. And the fact that I, or anyone else, needs to waste so much time explaining why it’s so far separated from reality is just sad. Let’s start by remembering that on these quarterly reports they annualize the number, meaning that their measured growth was about 1.4%, and it will be undoubtedly revised downward in the subsequent revisions, the revisions become so huge that no one can possibly value this report as having any value or meaning at all. Also, you will not read the headline from the cheerleaders that 2009 GDP for the year was -2.4%, even with their trumped up numbers. Remember, GDP is measured in dollars, not anything real, it is then highly manipulated via the deflator and a multitude of other adjustments.

Here's Econoday's report, when you start looking inside at things like imports falling and inventory adjustments, it doesn't look so hot:

HighlightsFourth quarter advance estimate of gross domestic product was up more than expected at an annualized rate of 5.7 percent. This was the quickest growth rate in more than six years. Analysts had expected an increase of 4.5 percent. The fourth quarter gain primarily reflected an acceleration in private inventory investment, a deceleration in imports and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE. Real final sales of domestic product - GDP less change in private inventories - increased 2.2 percent in the fourth quarter, compared with an increase of 1.5 percent in the third.

The change in real private inventories added 3.4 percentage points to the fourth-quarter change in real GDP after adding 0.7 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second.

Real federal government consumption expenditures and gross investment edged up 0.1 percent after jumping 8 percent in the third.

Slower inventory depletion is not the most promising way to guarantee growth and may indicate a slower rate of growth ahead until companies become more confident about the recovery. The biggest challenge to sustainable growth still remains with employment.

It’s my contention that the real economy has not really grown at all in the past decade and that our stated total goods and services produced is DRASTICALLY overstated. Not just because of a falling dollar, but in large part due to the “growth” of financial engineering where assets are marked to model and hidden from view, yet counted as adding to our productivity.

And here’s a John William’s Shadow Stats alternative GDP chart, while his calculations are showing far lower than BEA reported growth, I think that actual activity is substantially less but that cannot be measured due to the opacity of the shadow banking system and its effects on GDP.

The inability to produce reliable and realistic economic data is a MAJOR flaw of our current system. When we look back on what happened, what is occurring with the data will be a major contributor. If you can’t measure what’s happening, how can you make any valid decisions? This mislabeling leads to huge misallocation and the assumption of far greater risk than is appropriate. People who compare our debts to our GDP, for example, are NOT comparing apples to apples if they look at historic ratios. Our actual debt to GDP, since GDP is vastly overstated, is vastly understated.

This is why Freedom’s Vision creates the Independent Data Panel that rolls all the government statistics into a single, completely Independent and transparent reporting agency. Their basic tenant is to produce accurate data, remove opacity, and remove any insider advantage.

1. Complete transparency is one of several, yet ultimately the final check and balance:

i. ALL data is made available to the public, free of charge.ii. NO ONE, individual, firm, or politician is to have access to the data before the public. This prevents the insider advantage and again is a check and balance on those collecting and disseminating the data.iii. Method of data collection and raw data MUST accompany all reports.

2. Statistics shall be separated and reported in three categories:

i. Raw data.ii. Timeless data – methods shall be developed to report data in such a manner that the methods of calculation can be repeated and reported consistently over time. This ensures that future generations can compare apples to apples.iii. Modern data – these are data that can be improved and changed over time. However, all such changes shall be completely transparent and shall always be presented with the raw data and with access to the way in which the statistic is compiled and calculated.

If you want to live in a nation in which you are proud, I would encourage you to support Freedom’s Vision and take the money power back to secure our money, freedom, and future.

And in the more to be proud of department, our fine Senate yesterday voted to increase the deficit ceiling by a mere $1.9 Trillion:

Jan. 28 (Bloomberg) -- The U.S. Senate voted to increase the federal debt limit by $1.9 trillion, to $14.3 trillion, a figure lawmakers said would be enough to accommodate borrowing for the rest of 2010.

The vote was 60-39 to send the measure to the House, which will take it up next week. The increase is more than twice the size of any of the four previous debt increases lawmakers approved in the past two years.

The party-line vote was a win for Democrats who fended off Republican attempts to force them to pass repeated, smaller increases in the debt ceiling before the November elections.

“Why $1.9 trillion? So that the Congress doesn’t have to face up to the debt ceiling before the next election,” said Senator Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee. “The people in this country have a right to know whether or not this Congress is going to do something about controlling the rate of growth in the debt before the next election.”

Terrific to politicize this issue. Once again the central bankers are the ones who set up this system and it is they who profit from it while it shackles the rest of America.

$1.9 Trillion will only last until the end of the year?! And that’s without counting all the other unfunded liabilities. How much money is that? Let’s break it down…

$1.9 Trillion divided by 307 million, the population of the United States, equals $6,188. That’s for every man, woman, and newborn, or equal to $24,755 for my family of four!

$1.9 Trillion divided by the BEA’s 140 million workers in the United States equals $13,571 for every worker! Guess what, all four members in my family work – that’s $54,284 for just my family, for just one year, it is just the debt on the Federal level and does not include prior debts, future debts, debts on other governmental levels, or INTEREST, which, by the way, at 5% adds another $2,714.

Does that math work?

Okay, let’s do the same for $14.3 Trillion, our current account deficit at the end of 2010. First of all, at 5% interest (yes the interest rate is lower than that now, but we are spending TRILLIONS to artificially buy that rate down) the interest expense this year will be $715,000,000,000 (reported to be half that by the Treasury, again a number based on shoveling more money to buy down rates - this will come to an end). That’s Billion with a capital B. Please keep in mind that our national INCOME is now only running about $2.2 Trillion, meaning that interest alone with 5% interest will take up about a third of our income.

Oh, and if we are running a $1.9 Trillion deficit, or more, in 2010, then our deficit just this year is nearly equal to this nation’s income! You want to talk about math that doesn’t work. Go ahead, Congress, and vote to keep increasing the ceiling, you might as well because game over occurred quite some time ago.

$14.3 Trillion equals $46,579 for every man, woman, and child.

$14.3 Trillion equals $102,142 for every worker, $408,571 for my family of four.

Again, this is without counting any future liabilities which drives the national level indebtedness to well over $1 million for just my family alone.

Is it fair to say that it’s time to step outside of the central banker DEBT backed box? I think so.

Now, how does this administration handle this? Well, they see that wages are not going up and they see that businesses are not hiring, so why not just make every new hire in the nation a government employee by giving businesses $5,000 for each person they hire? Sure, we can afford to do that with our debt backed money, surely that will help Americans right?

NEW YORK (CNNMoney.com) -- When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.

Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."

Obama will travel Friday to Baltimore, where the local unemployment rate is nearly 11%, to unveil his tax-cut road map. The $5,000 per-worker tax credit he's calling for would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.

Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.

$33 Billion isn’t anything, is it? And what do you suppose the unintended consequences of this little ditty might be? Wage inflation? More devaluing of our dollar? Is this really America? Do people really think that can work in anything but the very short term? I swear it’s like living in some sort of fantasy nightmare, somebody please wake me up, okay?

I had a bunch of charts to show you, but this is taking far too much time to get posted so I just want to say that the downward channel has broken to the upside, and that we formed a descending wedge over the past couple of days that has now also broken to the upside, meaning that it appears that wave 2 up is beginning.

I’ll try to have more technical stuff as I have time, but I think the fundamental landscape is far more important at this juncture. Those who think that the debt situation is workable are simply mistaken. There’s a brick wall up ahead and we’re doing over 100 mph straight at it. Eh, what’s another $1.9 Trillion, just another brick in the wall…

Thursday, January 28, 2010

Equity futures are higher this morning, below is a snapshot of the overnight action and the ramping that began with the FOMC announcement yesterday:

The dollar is about level from yesterday’s close, bonds are down slightly, both oil and gold are up slightly.

Yesterday’s FOMC announcement was more of the same, bottom line is that they are still claiming to end many of the support programs, HOWEVER, should the economy not hold up they are ready to jump in, steal some more and will continue to destroy the rule of law along with what’s left of our economy. Isn't that what you heard? That's what I heard.

Then we had to endure the most bizarre State of the Union Speech I have ever witnessed. The vast majority of it was spent talking about the economy. What I heard are the same old and tired central banker boxed in arguments. In what was simply a redress of his worn out campaign rhetoric, he talked mindlessly about spending massively to help this group, then swung wildly to keeping our deficits under control, and then back to massive spending, yet more lip service to being fiscally responsible.

In terms of fixing the economy, how’s this for a plan? “We’re going to DOUBLE this nation’s exports within the next five years!!” Say what? Really? That is exciting, and it would truly be a miracle of mathematically impossibility, perhaps he is the messiah! Because last time I checked, we are manufacturing less and less of anything worth exporting. So, exactly how are we going to do that? Well, he’s going to appoint a commission to promote exporting.

Does this make you feel secure in our future? Yes, it is possible to double our exports in five year, here’s how… you measure your exports in dollars instead of actual products. Then, you crush the value of your money by spending far more than you take in. Wah-lah, value of money cut in half, exports double. See, it’s as easy as reconfirming Ben Bernanke.

Now, I was amazed that he spoke to the very political reform that is contained within Freedom’s Vision! Yes! Support from the big guy! He actually spoke of separating special interest money from politics! I was feeling like a lone wolf on this last year, and now the President is speaking about it. He also spoke about limiting lobbying, and about getting earmarks under control. AND, he even slammed the Supreme Court for their ruling last week basically stating that corporations are PEOPLE and that they have the same rights as real people and thus can spend unlimited funds, which of course, real people could never hope to accumulate. BRAVO! He is, in my opinion, correct on all accounts. Now, where is the action to back up the rhetoric? Was a plan presented to achieve these things? This from an administration that has more central bankers in it than any other in the history of this nation.

Here is the full, and lengthy, State of the Union Address for those who missed it. This is a different type of atmosphere for America, we are changing, but I am not liking the change I am seeing.

Taking credit for 2,000,000 jobs "saved" when 6,000,000 were actually lost in the past year is a new low for truth in government.

Today is the vote to reconfirm Bernanke. He put on a full-court-press over the past week, visiting members of the Congressional Banking Committee… there is speculation that there was deal making taking place. In other words, if you reappoint me, I will continue to crank out the money that will keep you in office. Seriously, the number of contacts he had in the past week is evidently a record.

Our country has sold itself out to debt backed money. Listening to Obama, I just wanted to scream that REAL solutions do exist. They are contained within the pages of Freedom’s Vision! It begins by removing our ties to central bankers and debt backed money, and takes back the money system of the United States, truly accomplishing that to which he is giving lip service. Of course in order for that to happen it is going to take the people DEMANDING that it happen.

It is time to get out of the central banker debt based box and begin looking at the problems with a fresh set of eyes:

To today’s economic news…

The weekly Jobless Claims fell by 8,000 to 470,000. This was worse than the 440,000 that was expected. Here’s Econoday:

HighlightsJobless claims fell 8,000 in the Jan. 23 week to 470,000 (prior week revised 4,000 lower to 478,000). The improvement was smaller than expected given that the Jan. 16 week was inflated by holiday processing delays, which the Labor Department said have now eased. Expectations, at 440,000, were looking for a return to the prior trend of late December and early January. The four-week average, up 9,500 to 456,250, rose for the second straight week, a disappointment that ended a string of improvement going back to the beginning of September.

Continuing claims for the Jan. 16 week fell 57,000 to 4.602 million with the insured unemployment rate dipping 1 tenth to 3.5 percent. Improvement here is distorted to a degree by the expiration of benefits which are pushing the jobless out of the insured workforce. Those receiving extended benefits edged lower to nearly 262,000 with those receiving emergency compensation falling a little more than 300,000 to 5.35 million (these data are for the Jan. 9 week).

Today's report is a disappointment pointing to no improvement, and even the risk of a set-back, for monthly payroll data. Stocks and the dollar edged lower in reaction to today's 8:30 data that included a smaller-than-expected gain for durable goods.

People are now falling off not only the regular rolls, but their emergency benefits are running out too. This was the first week in quite some time that the year over year total combined number is actually down from 5.7 million last year to 5.6 million this year:

The advance unadjusted insured unemployment rate was 4.3 percent during the week ending Jan. 16, a decrease of 0.2 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 5,605,729, a decrease of 185,351 from the preceding week. A year earlier, the rate was 4.3 percent and the volume was 5,715,432.

Durable Goods orders came in way below expectations but is slightly positive for the month, .3%, but the consensus was for a 1.6% jump, and it is still down 3.1% over the height of the crisis last year.

HighlightsToday's durables report is showing the manufacturing sector continuing to slowly gain momentum. Despite a December gain, the immediate question for the markets is whether a disappointment on headline expectations is offset by upward revisions to November and favorable detail for December. New orders for durable goods in December rebounded 0.3 percent after a revised 0.4 percent drop in November. The November number had previously been estimated to be a 0.7 percent decline. However, the December gain fell short of the market forecast for a 1.6 percent spike. But weakness was the lack of a rebound in Boeing orders. Excluding the transportation component, new durables orders advanced another 0.9 percent, following a 2.1 percent rebound in November.

Excluding the weakness in civilian aircraft, December was positive overall. Also, there is an indication of growing optimism by businesses. Nondefense capital goods orders excluding aircraft increased 1.3 percent in December after jumping 3.1 percent in November.

Year-on-year, overall new orders for durable goods improved to minus 3.1 percent in December from minus 6.9 percent the month before. Excluding transportation, new durables orders returned to positive territory, rising to plus 0.5 percent from down 5.5 percent in November.

Despite a shortfall in headline expectations for December, upward revisions to November, a jump in ex-transportation in December and another gain in nondefense capital goods ex aircraft may turn the report into a net positive-even compared to overall expectations. However, initial jobless claims were worse than expected.

Remember, we fell off a cliff and we simply landed with a thud. It will take years of incremental gains to get even close to where we were. And the landing that’s been achieved was achieved at the expense of trillions of dollars. What happens as that support is no longer there? Is there fundamental improvement? NO, keep your eye on the debt. Until the debt is cleared our economy will not move forward when measured in real things. This is exactly what the Administration fails to take seriously and what they continue to make worse. Yes, they came in with a mess, but you cannot solve a debt problem with more debt.

In terms of the market, we went right down to critical support and bounced. It did appear to be a short wave 5 down that completed yesterday. That means that we likely witnessed the first part of wave 2 up that follows the 600+ point decline of wave 1. Wave 2 is likely to retrace 61.8% of wave one and that would roughly target the 1,125 area. Of course it can be anywhere from here to the old high, but that is the most common wave 2 retrace. Remember, we just had a VIX market buy signal. Failing to reach 61.8 would mean a very weak retrace. Wave 3 down (of the larger wave 1) should follow that.

So far the bounce looks weak for a wave 2. With Beranke and fourth quarter GDP to come tomorrow, I would be ready for anything in here.

Yesterday’s action produced hammers on most of the daily charts and the XLF was strong. This is usually a sign of bottoming but needs confirmation from today’s action. 1,090 is still the working support pivot, 1,107 is the next higher hurdle, and should we break down, 1,080 is still key support 1,061 the next lower pivot.

I note that the futures have made a W looking formation. These formations can be bottoms, but if they fail, can also be continuation patterns. The tell for me is that at the end of the W there is usually a retrace lower… if that retrace stops above the half way point and bounces, the odds are that we are going higher. If, however, it breaks below the half way mark, odds change to lower. As I type we are about the half way mark now:

Yesterday’s speech reminded me more of British politics. Perhaps that’s what we degenerate to when people are frustrated? Hey, if you are trying to teach a pig to fly (debt backed money), you are going to be frustrated because pigs don’t really have wings!

Wednesday, January 27, 2010

Equity futures are higher, no lower, no higher this morning… below is a chart with the DOW and S&P overnight action:

The Dollar is higher, bonds are higher, while both oil and gold are lower.

Today the FOMC will release their “decision” at 2:15 Eastern. Of course with rates at zero and staying that way we are left only to marvel at their wordsmithing. It is simply amazing to me that our nation hangs on every syllable spoken by a central banker mouthpiece. What an archaic system, we never should have allowed the bankers to control our interest rates much less our money system. Banks and money systems are two completely different things, the money function belongs to the people and we need to take it back.

Playing the market after the statement is dangerous if you’re a short term trader… be careful. We also have new home sales out at 10 Eastern and the petroleum report at 10:30.

Bloomberg offers the following expectations about the Fed’s announcement:

Jan. 27 (Bloomberg) -- The Federal Reserve may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March.

Fed Chairman Ben S. Bernanke and other policy makers meet after the sixth straight monthly gain in home prices in November added to signs housing is stabilizing. With financial markets rebounding, the central bank has said it plans to end emergency aid to bond dealers and money markets by Feb. 1.

Riiiight. Of course the markets cannot stand up without support! What’s shocking is that we allowed it to get to that condition with them stealing the fruits of our labors the entire time. Again, our nation has put itself at the mercy of the bankers. Why do we allow that? It’s time to take control of our money system back. Replacing Ben Bernanke, by the way, won’t accomplish a thing. Let me say it again… We need to take control of our money system.

The completely worthless MBA Purchase Applications report fell 3.3% in the past week, the refinance index falling 15.1%. Again, I can only shake my head in even calling it an economic report. Kids slinging crap is what it really is. But someone must love the smell of it every week, because no one’s talking about changing it besides me that I can tell. Freedom’s Vision would create an Independent Data Panel to consolidate economic reporting, create complete transparency, and benchmark how data is to be reported. This wouldn’t even make it in the door for consideration:

HighlightsThe Mortgage Bankers Association's refinancing index fell 15.1 percent in the Jan. 22 week, leading the MBA to issue a rare comment in their text: "Although rates remain low, there appears to be a smaller pool of borrowers who are willing to refinance at today's rates." The average 30-year mortgage rate edged 2 basis points higher in the week to 5.02 percent. MBA's purchase index fell 3.3 percent.

It’s obviously not just government statistics, in fact, allowing corporations like Goldman, or like the NAR to report on economics is very much like allowing the fox access to the hen house. Again, why do we allow such obvious conflicts of interest?

The sideways action the past two days has given the Bollinger bands and oscillators time… the sideways action looks like a wave 4, but is now getting long in duration compared to the other waves and is not a large enough retrace for a typical wave 2. So, the favored count is that wave 5 down hasn’t happened yet. However, this is a dangerous assumption, I think this is a good time to just be observing. When wave 3 occurs, that will be the safest profit opportunity.

Below is a 3 month chart of the DOW. You can see the two sideways days sitting on the lower Bollinger while it turns downwards. The daily stochastics are just getting oversold, but can stay there, the weekly is just now working its way down from overbought:

The XLF was hit hard yesterday. The more it looks like they really mean separating Investment and Commercial banking, the harder it gets hit. I don’t know what to believe in this regard, I have a hard time believing that real change is going to come from this Administration, we’ll see. Instead, I feel another hostage situation coming on, do this _______ or else we tank the system and _______ will happen, befalling terror upon you all! Fun game isn’t it? How about we just take our money system back?

Yesterday the VIX closed back beneath the upper Bollinger band. This is a market buy signal. Only been three of those in the last three years, each one has produced a significant rally in the markets within the following few days. Not immediately, but I would expect that by either late this week or early next we will be rocketing higher in a legitimate wave 2 retrace that typically will retrace about 61.8% of the move down:

Playing the first wave down is never easy. If I had to gamble in this casino the way it is now, I would stay completely away until wave 3s come along, get in and then get out. Let the central bankers and quants have fun playing with one another in the mean time until we can take the system back and return it to a functional and healthy market that serves the purpose for which it is intended.

Yes, I do have high hopes we can do it, just remember that their game is to box the issues in and then to divide and conquer:

Equity futures are down this morning, below left is a 30 minute chart of the DOW so that you can see the waves from the top, and on the right is a 5 minute chart of the S&P futures showing the overnight action:

While we can see the waves above, it would appear that yesterday proved to be a sideways wave 4 and we broke lower overnight in the start of wave 5. Wave 5 could already be complete as you can see a descending wedge that has already been broken upwards. If so, expect an abc move over the next few days. These waves are likely a part or all of subwave 1 down at the beginning of wave C down.

Both the dollar and bonds rocketed higher overnight. The dollar is trying to break out above recent highs and looks to be on the verge of doing so. Both oil and gold are lower, already erasing yesterday’s small gains.

In a nutshell, yesterday was an oversold rest on lower volume with divergences in the advance decline line pointing towards more selling and the lack of a substantial bounce pointing towards wave 4 sideways motion. Below is a 5 minute chart of the DOW (without overnight action) and it’s pretty easy to count the waves. Note how wave 2 is steeper than wave 4. This is classic, it happens that way because of psychology, people in wave 2 are thinking it was just another dip, and by wave 4 are resigned to the fact there’s probably another leg to go:

Oh, and of course yesterday’s existing home sales being down the most in 40 years helped produce that psychology as well. Can you believe that? A 17% drop in one month? Well, I can’t, that’s because it’s not real, it’s all a manipulation by NAR, the National Association of Realtors. Is it just bad data, or is it intentional, fluffing up prior month's data? I don’t know, but this type of stuff is exactly why we need real measurements presented with complete transparency if we are going to correctly evaluate our economy.

And the Census Bureau came out and said “Ooops” on their last Durable Goods report that they reported at a positive .2%, now stating that it was really a minus .7%! Why is all this happening now? I can assure you these types of massive adjustments and wild swings are not normal and they are NOT okay.

Turns out some emails are floating around regarding with discussion of Goldman possibly just tearing up the AIG CDS that wound up being paid at 100%. Hmmm… and now we learn that certain documents were not handed over to the investigative unit. Hmmm… anybody else smell smoke? The fire I would like to see is the entire Fed that needs to be dismantled. These shenanigans are all the result of allowing private banks to control and produce our money.

Today, of course, begins the FOMC meeting and the wordsmithing will be released tomorrow. They are feeling the heat because they know that they are hitting the wall in terms of selling more debt and if interest rates climb the cost of interest will strangle government who are spending trillions they do not possess.

Jan. 26 (Bloomberg) -- Federal Reserve policy makers are considering adopting a new benchmark interest rate to replace the one they’ve used for the last two decades.

The central bank has been unable to control the federal funds rate since the September 2008 bankruptcy of Lehman Brothers Holdings Inc., when it began flooding financial markets with $1 trillion to prevent the economy from collapsing. Officials, who start a two-day meeting today, have said they may replace or supplement the fed funds rate with interest paid on excess bank reserves.

“One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that,” Richmond Fed President Jeffrey Lacker told reporters on Jan. 8 in Linthicum, Maryland.

The central bank needs to have an effective policy rate in place when it starts to raise interest rates from record lows to keep inflation in check, said Marvin Goodfriend, a former Fed economist. Policy makers are concerned that the Fed funds rate, at which banks borrow from each other in the overnight market, may fail to meet the new target, damaging their credibility and their ability to control inflation as the economy recovers.

‘Extended Period’The choice of a benchmark is the “front line of defense against inflation, and also it’s at the heart of the central bank being able to precisely and flexibly guide interest-rate policy in the recovery,” said Goodfriend, now a professor at Carnegie Mellon University in Pittsburgh.

The Federal Open Market Committee is likely to maintain its pledge to keep interest rates “exceptionally low” for an “extended period” in a statement at about 2:15 p.m. tomorrow, economists said. The Fed probably won’t raise interest rates from record lows until the November meeting, according to the median of 51 forecasts in a Bloomberg survey of economists this month.

Fed Chairman Ben S. Bernanke, in July Congressional testimony, called interest on reserves “perhaps the most important” tool for tightening credit.Inflation Concerns

Banks’ excess reserves, or deposits held with the Fed above required amounts, totaled $1 trillion in the two weeks ended Jan. 13, compared with $2.2 billion at the start of 2007. The Fed created the reserves through emergency loans and a $1.7 trillion purchase program of mortgage-backed securities, federal agency and Treasury debt.

By raising the deposit rate, now at 0.25 percent, officials reckon banks will keep money at the Fed and not stoke inflation by lending out too much as the economy recovers.

The new policy may be similar to what the Bank of England does now, said Philip Shaw, chief economist at Investec Securities in London. The U.K. central bank’s benchmark interest rate, now at 0.5 percent, is the rate it pays on the reserves it holds for commercial banks. It may drain excess liquidity from the system by selling back the gilts it has purchased through its so-called quantitative easing program, Shaw said.

Let me first say that the entire concept of PAYING for “reserves” is nauseating to say the least. Hank Paulson threw this in during the height of crisis in ’08. Their rational is that the poor little itty bitty banks have “their” money held and so we taxpayers should be paying them interest on their “reserves.” WHAT NONSENSE! Banks must hold reserves as a part of their capital so that they can earn money from the PRIVILEGE of being able to rape the public with usurious interest rates while producing fractional credit dollars from nothing but the stroke of a digital pen. The notion we should also pay them for their reserves is mind boggling.

Now it turns out we are going to allow them use that rate, one they can control easier, to help keep their cost of borrowing down. Here’s a concept, how about not giving away TRILLIONS to criminals, then you wouldn’t have to worry about it?

Not to worry, Obama has a plan to save $250 billion over the next 3 years. That will do it!

Washington (CNN) -- President Obama will announce in Wednesday's State of the Union address that he's proposing to save $250 billion by freezing all nonsecurity federal discretionary spending for three years, according to two senior administration officials.

The proposed freeze, which could help position Obama in the political center by sharpening his credentials on fiscal discipline, would exempt the budgets of the departments of Defense, Homeland Security, and Veterans Affairs, along with some international programs.

"We are at war, and we're going to make sure our troops are funded adequately," one of the senior officials said.

And why do you think he’s talking tough about the deficit now? Notice the exemptions? The very thing he promised to reign in prior to being elected. Is it enough to make the parabolic curve of government debt begin to roll over? Don’t think so, but if and when they do get serious about fighting the deficit, then you will see the suffering by the people deepen. That is assured one way or the other with the policies they are pursuing. There is only one way out, and that is to free ourselves from the system that was put in place in the year 1913.

And a great example of how NOT to control an economy is China. Talk about pilot induced oscillation. China is cranking out credit dollars like there is no tomorrow, oh wait, it’s overheating, better pull it back. Bubble, burst, bubble, burst.

Jan. 26 (Bloomberg) -- Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month.

Bank of China Ltd. has stopped extending new corporate loans in the Shanghai area, except for clients who have repaid earlier borrowings, said a person familiar with the matter who declined to be identified. China Construction Bank Corp.’s branch in the city has been told to screen applications for personal loans and mortgages more carefully and to stop new lending once a monthly quota is met, another person said.

China’s benchmark stock index fell to a three-month low today on concern a government clampdown on lending will slow the world’s third-largest economy. Credit Suisse Group AG said in a note today that a countrywide lending halt that started Jan. 19 may trigger a “meaningful” decline in manufacturing.

DUH. It would appear that no nation has any intelligent life forms at all. But I don’t think it’s not that there isn’t intelligent life, it’s all about power and control. We are all being played. If that makes you angry, then I suggest you get really excited about backing Freedom’s Vision. Yes, it’s been taking longer than thought, but the website is coming along and the open house will be soon.

Now moving on to today’s data, the worthless Goldman same store sales fell 2.5% last week, and Redbook is still showing a false 1% rise year over year.

The Case-Schiller Home Index fell in November. Econoday says not to worry, as the price rose in the existing home sales disaster of yesterday. Riiight. Is there anyone left who believes this drivel? Evidently…

HighlightsHome price recovery stalled through the first two months of the fourth quarter according to Case-Shiller data that shows a headline 0.2 percent decline in November for the composite-10 index following no change in October (158.49 Nov. vs. 158.83 Oct.). The report had shown a series of gains beginning in mid-year, gains that firmed hopes for wider recovery in the housing sector. The composite-20 index also fell 0.2 percent following a 0.1 percent decline in October (146.28 vs. 146.60).

Note though that the headline for this report, interestingly, is unadjusted. When adjusted the data look less downbeat, showing slowing and marginal rates of increase in what is still not the best news for the housing sector.

Today's report could have upset the housing outlook were it not for yesterday's existing home sales report which showed a big jump in December prices, one tied to a falling proportion of first-time buyers (related to the first expiration of first-time buyer credits). New home sales for December will be posted tomorrow and will offer new clues on pricing.

There is waaaay more supply than we are being told. The banks have a huge shadow inventory and people will find that the supply just keeps coming and coming. Prices will not rebound significantly for years. And don’t forget where we are in terms of the mountain of option-ARM loans resetting, the climb is just beginning.

Consumer Confidence just came in with a rise from 53.5 to 55.9 which was ahead of the 53.5 consensus. Normal Confidence numbers are in the 70s, nothing to get excited about here, for sure, although if you were a mindless mainstream reporter, you might say that the market rose with consumer optimism, lol. It could never be because wave 5 was already over.

Oh, and here’s the FHFA Home Prices Report, up .7% in November, up .5% on a YoY basis from the prior -1.9%. But wait, LOL, last month they reported October as being UP .6% and now say “Oooops,” it was really DOWN .4%. Has the whole world gone mad? It would appear so. Again, HUGE adjustments are not normal. Was there a coordinated effort during the November time frame to make the data appear better than it was? Do you see a trend? Again, this is not normal behavior and it is NOT acceptable.

HighlightsU.S. home prices rose 0.7 percent in November on a seasonally adjusted basis, according to the Federal Housing Finance Agency's monthly House Price Index. The October number was down a revised 0.4 percent, compared to the original estimate of up 0.6 percent. On a year-on-year basis, the House Price Index rose 0.5 percent in November, compared to down 2.0 percent in October.

With this morning's earlier released Case-Shiller gain of 0.2 percent for November, housing is slowly creaking forward in terms of price stabilization. The big risk, however, remains potential supply overhand from foreclosures. But for now, home prices appear to be improving from severely depressed levels. This should be good news for equities-especially since consumer confidence came in a little better than expected.

Riiight, keep telling yourself that… I can fly, I can fly… Now go jump off a tall building and see if it works! This type of data flow is simply not acceptable. Your chain is being pulled, can you feel it against your shackles? What say we break free from this nonesense?

Monday, January 25, 2010

In the middle of January, 2009, the “Group of 30” (check out this cast of characters) which was formed in 1978, is Chaired by Paul Volcker and comprises a group of central bankers and others, released what it calls “Financial Reform – A Framework for Financial Stability.”

What you find inside are 18 clear and concise recommendations for financial reform.

Amazingly, many of them are very close to the recommendations contained within the monetary reform framework of Freedom’s Vision Outline.

They are worth looking at, as they give some insight into the direction Volcker may take the administration if they are willing to listen. They address a lot of key issues including: Deposit concentration, Hedge Funds, Simplification of international structure, Risk management, Liquidity Risk Management, Fair Value Accounting, Off-Balance-Sheet Vehicles, Rating Agencies, OTC Transparency, Structured Products, and Freedom and Sharing of information.

In my opinion, the most important of all the above suggestions is the importance of freedom and sharing of information. Transparency is the one concept that provides the ultimate check and balance. Without it, the citizens are in the dark and vulnerable to manipulation.

While I give praise to the items addressed by this distinguished group, we must consider the items that were NOT addressed and ask why!

Let’s start with “structured finance,” another term for derivatives. Their solutions do not address how to lessen the risk of the massive derivatives that currently permeate the globe. Why? Because they don’t have an answer, they cannot support removing them because they know the banks that many of their members represent would fail should they be removed. This is the beauty of the Freedom’s Vision plan in that it provides a unique method to cleanse the system and ensure the risk does not return, while at the same time ensuring the survival of ALL banks through the transition period.

There are also massive unstructured debts that permeate the system. How does a country heal when every level of the economy, its citizens, its businesses, its local, state, and federal governments are all saturated with debts and future liabilities? Again, they fail to mention how we get from here to there and what effect imposing their changes would have on the entire world.

This is because their proposals only go half the way there. They are dangerous standing alone because they will cause deleveraging without actually addressing the root cause of our debt backed money system.

“It’s not WHAT backs our Money, it’s WHO CONTROLS the QUANTITY!” - Bill Still

As it turns out, it was a good idea to take profits on Friday if you were short, as the equity markets are up over the weekend after the SPX landed right on a support level in the 1,090 area.

Below are the DOW and S&P futures, I left the DOW chart on a longer timeframe so that you can see the descent that was made last week. I can count that descent as a 5 wave move, so that may mean that wave 1 of wave 1 is complete just in time for the usual Monday ramp job which is now 19 of 21, or of the past 21 weeks there’s a 90% chance of Monday being an up day. When that pattern breaks, look out. There’s still a chance this rise is just a wave 4, and also note that it’s moving quickly. If a wave 4, we should see some selling later. If this is a wave 2 bounce, it should also move quickly and should draw back in a lot of bulls, probably in an a-b-c fashion:

Existing home sales will be released at 10 Eastern, that is likely to move the markets. Tomorrow begins the FOMC meeting that will be announced Wednesday, Consumer Confidence on Tuesday, and then we get to see how much fun with numbers they are having with the 4th Quarter GDP on Friday. A busy week for data.

We also must endure watching the Bernanke spectacle play out as he must be reconfirmed this week.

Here’s a chart of the SPX, you can see pretty clearly where support and resistance levels are here:

Obama is trying to placate the middle class uprising with words and more handouts (ht AZRainman). Child tax credits? Oh yeah, that will solve the problems. When you hear talk like the following, always ask yourself, “Where is the money for that coming from?”

WASHINGTON (AP) -- Previewing key elements of his State of the Union address, President Barack Obama is announcing on Monday a series of initiatives aimed at calming some of the economic fears of struggling middle class families.

The proposals to be unveiled by Obama and Vice President Joe Biden at the White House, and which the president will push in his Wednesday night speech, include a doubling of the child care tax credit for families earning under $85,000; an increase in federal funding for child care programs of $1.6 billion; capping student loan payments to 10 percent of income above "a basic living allowance;" expanding tax credits to match retirement savings; and increasing aid for families taking care of elderly relatives. The plan would also require all employers to provide the option of a workplace-based retirement savings plan.

The proposals are the result of the work of a middle class task force that Biden had headed. A White House official says they are aimed at the "sandwich generation" -- Americans that are struggling to care for both their children and their parents. The official spoke on the condition of anonymity because the speech has not been finalized.

The official said that creating jobs, addressing the deficit, changing Washington and helping middle class families are the main themes of Obama's first State of the Union address. He'll also discuss his bid to take on the financial industry, energy, education and immigration -- all issues the president has said fit into his plan to rebuild the economy.

White House advisers see the speech as a key opportunity for Obama to recalibrate his message to better connect with the public and reset his presidency after stinging setbacks.

Obama has promised a sharper focus on jobs and the economy as the dust settles from the punishing loss of the late Edward M. Kennedy's Senate seat in Massachusetts. Republican Scott Brown's victory put the seat in the hands of Republicans for the first time in decades and took away Democrats' 60-vote majority in the Senate.

Obama and fellow Democrats are trying to regroup to head off more populist anger and stem more losses of congressional, gubernatorial and legislative seats in the 2010 midterm elections. Obama's poll numbers are also off -- primarily because of the slow economic recovery and double-digit unemployment. A majority of Americans also have turned against health care reform, the president's signature legislative effort now in jeopardy.

The initiatives being announced Monday were first reported by The New York Times.

Under the president's proposals, families making under $85,000 a year would see their child care tax credit nearly doubled. Families making under $115,000 would also see at least some increase in their credit. Obama will also call for the allocation of $100 million to assist families caring for aging relatives by providing help with transportation, adult day care and in-home aids.

Since he is going to have to add more debt on top of debt, or print to do this, expect the net effect to be negative to the economy overall. Remember that the velocity of debt is now negative 15 cents. The Japanese have been doing that for 20 years and it is only making their problems worse, they will be printing trillion yen bills in Japan in the not to distant future at this rate. We’re not that far behind and starting from a much weaker debt situation.

Sam’s Club announced they are laying off 10,000 employees. They claim they are going to be indirectly hiring them back via outsourcing, so those firms will have to hire about that many to compensate. What they are really saying is that they are outsourcing already low paying jobs to a company that can do it for even less. Riiight. Can’t you just see the jobs of the future? More tax credits and food stamps for everyone.

For more technical analysis, please refer back to the weekend update. Remember, today’s Monday, these are the best of times!